Asset Managers Turn Bearish, Hoard Cash

A global survey of managers finds high levels of cash and a dramatic change in sentiment towards Europe.

Investors are stockpiling
cash and exiting European and UK assets, according to a survey of asset
managers.

The average cash
balance among 160 global investors rose to 5.8% this month, according to Bank
of America Merrill Lynch’s (BoAML) research. This was the highest level
recorded by the survey since November 2001.

Managers are also
buying protection against stock market falls at a record rate, BoAML reported,
while taking up underweight positions in equities, especially in the Eurozone
and the UK following the latter’s vote to leave the European Union (EU).

The survey reported
participants’ first net underweight to the Eurozone in three years after a
collapse in sentiment. In
June, allocators had a net overweight to the region of 26%; by July this
had fallen to a net 4% underweight.

Asked about future
central bank policy, 39% of respondents said they expected at least
one major central bank to adopt a “helicopter money” strategy in the next 12
months, injecting cash directly into the economy rather than buying government
bonds.

A net 44% of
investors said global fiscal policy was “currently too restrictive”—a
record level for BoAML’s survey.

Managers’ average cash balance. Source: BoAML Global Fund Manager Survey.Reflecting the
shift in sentiment, Columbia Threadneedle’s European CIO Mark Burgess this week
stated his firm had pulled back on its favorable view of equities, which it had
held for more than five years.

The post-referendum
equity rally “feels somewhat unjustified and unsupported by the fundamentals,” Burgess
said. “There are going to be a
number of headwinds facing the UK economy as it detaches itself from the EU
over the coming years, which will likely reduce economic activity in the UK and
impact domestic profits.”

The impact of the
US elections in November and a possible broader fallout from Brexit across the
EU were also important concerns, Burgess added. “We are also mindful of the
global debt burden and global overcapacity, and are particularly alert to the
alarmingly high levels of non-performing loans in the Italian banking system,
as well as China’s ongoing attempts to rebalance its economy.”